To Tip or Not To Tip?

Jan 11, 2019   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

The old adage no news is good news held true this week.  The markets were relatively calm ahead of fourth quarter earnings announcements which will begin next week.  There were a few companies in the retail and technology sectors who lowered guidance ahead of earnings season, presumably to allow the markets time to digest the news.  It is yet to be seen whether others will follow suit or if this is simply company specific.  However, it seems reasonable that CEOs may want to lower expectations for 2019 given what we know about the economic and political headwinds.

Along those lines, the current government shutdown is in its twenty-first day, tying the record for the longest such case in American history.  With both sides believing they have leverage, I don’t expect the shutdown to be resolved anytime soon.  For those 800,000 government employees currently furloughed, this will be the first pay period they forgo a paycheck.  While this may not appear to be a crisis yet, a recent study indicates 78% of those currently employed live paycheck-to-paycheck.  That includes those earning over $100,000 a year.  If these numbers are to be believed, it won’t be long before voters reach a tipping point and demand action.

In company news, Amazon took the top spot for the largest public company with a market capitalization of $803 billion.  It did so largely due to softness in Apple’s end markets which caused its stock price to dwindle over the last few months of 2018.  Sears sidestepped final bankruptcy once again when the judge hearing the case allowed its previous CEO, Eddie Lampert, one last chance to put together a bid.  Monday, we expect a final answer.  And lastly, IBM once again took the crown for receiving the most patents in 2018.  While this company may not be what it once was, it is far from being down and out.  Its library of intellectual property continues to grow each year as it finds new ways to remake itself.

A couple weeks back I commented on a significant number of pharmaceutical companies raising prices on medications by an average of 6.3%.  However, two new gene therapy drugs are on the verge of coming to market with prices that seem unfathomable.  Bluebird Bio presented on a new gene therapy drug that it believes has a value of $2.1 million.  The company expects to offer insurance companies the option to pay for this treatment over five years, essentially offering zero percent financing, much like consumers could a few years ago when purchasing a new car.  Unfortunately, these treatments cost a whole lot more than a car or even a fleet of cars.  It really says something when insurance companies need financing!  But even more stunning is a drug by Novartis for the treatment of muscular atrophy that is expected to cost $4-5 million.  I guess the sky is the limit.

In other news, the head lawyer for Goldman Sachs is retiring after twenty-seven years with the company.  I assume he must have done an admirable job given his tenure with the company.  After all, he did battle with both Congress and Eliot Spitzer, the then attorney general of New York.  What may come as a bit of a shock is that he is the largest internal shareholder of Goldman Sachs with over a million shares and a retirement package worth $500 million.  It seems he was a partner before the initial public offering (IPO) in 1999 and just held onto his shares.  If you’re interested and have the credentials, you may want to submit your resume.

In closing, in case you thought I couldn’t come up with another crazy story for this week, you’d be wrong.  It seems one airline is floating the idea of having customers tip flight attendants for service.  They take your order, serve up food and drink, and come back to clean up.  But the million-dollar question is, should you tip your flight attendant.  Apparently, Frontier Airlines thinks so.  It seems passengers who order refreshments will now get a prompt from Frontier’s payment system recommending they give a tip.  It offers passengers the options of 15 percent, 20 percent, or 25 percent.  This new model has engendered mixed feelings among passengers.  In case you were wondering, the median annual salary for a flight attendant in 2017 was around $50,500.  Now you know.

January 11, 2019

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